2023 (10) TMI 275 - HC - Income Tax

Re-assessment Notices Quashed: Officer Lacked New Info for AY 2014-15 & 2017-18, Writ Petitions Allowed.

The court quashed the re-assessment notices and proceedings for AY 2014-15 and 2017-18, concluding that the assumption of jurisdiction was unjustified. It ... Reopening of assessment - reasons to believe - Issue of notice where income has escaped assessment - Time limit for notice u/s 149 - HELD THAT:- The impugned proceedings have commenced with issuance of notice u/s 148 on 07.04.2021, seven years from the end of the assessment year in question. There is no averment in the notice that 'information' has been received indicating escapement of income attributable to the petitioner. There is no allegation that any new material has been found justifying a re-look into the matter. In fact, in order dated 29.07.2022 u/s 148A(d), the officer opens stating ‘As per the information available on record, it is observed that following discrepancies were noticed in the case of the assessee or A.Y.2014-15 described as under’. All materials in relation to foreign currency borrowings and transfer of assets to Asset Reconstruction Companies have been fully and comprehensively placed before the Officer, even at the time of scrutiny proceedings. The original assessment order passed on 29.12.2017 specifically recorded detailed examination of the financials of the petitioner. One of the issues dealt with under original assessment relates to disallowance under Section 14A r/w Rule 8 of Income Tax Rules in the course of which the investments of the petitioner have been subject to minute scrutiny. Interest from investments, including external commercial borrowings, income from venture capital funds and deduction under Section 36(1)(viii) in relation to transfer to special reserve, have not escaped the Officer’s scrutiny. An addition has been made under capital gain and disallowance of deduction of interest cost on zero coupon bonds. Thus, there is no doubt that the Officer has examined all aspects of the return and framed an assessment after thorough scrutiny. While so, the impugned proceedings are initiated based on the financial records already available with the Officer and indicating that a different view invoking Section 43A in respect of unrealised loss should have been taken. As regards the sale consideration from assets transferred to ARC, the officer records that income has been offered under the head other sources but expresses the view that the sale consideration ought to have been offered in full and not amortised over the years. A perusal of the reasons will confirm that in all the issues, the officer merely refers to the financials, Form 3CD, profit and loss account, computation statement and the details furnished during original scrutiny. Thus, in this case as well, there is no new or tangible information that has come to the notice of the authority to justify re-assessment as all relevant information was well available with the original authority. Obviously, only some specific information that has come to the notice of the officer, and hitherto unknown, would satisfy this requirement. Such information must be tangible and new and stale information already part of the record simply cannot qualify. Incidentally, the term ‘flagged’ has been omitted from this clause w.e.f 01.04.22 by Finance Act 2022. Thus, and evidently, material already on record and that has undergone scrutiny at the first instance cannot satisfy the statutory condition. On this score, the assumption of jurisdiction for initiation of proceedings for re-assessments is seen to be bad in law and quashed. Validity of the impugned proceedings have also to be tested on the anvil of the statutory condition in section 149 that the officer has in his possession, ‘books of accounts or other documents or evidence which reveal that income chargeable to tax, represented in the form of an asset’ has escaped assessment - With effect from 01.04.2022, even entries in the books of account could be pressed into service by an officer to initiate re-assessment after a period of three years. This cannot be resorted to prior to 01.04.2022 as the law, as it stood then, did not enable the same. Needless to state, the amendment of section 149 by way of substitution on 01.04.2022 is substantive making substantial inroads into the rights of an assessee and can only be taken to be prospective. Thus, as on 01.04.2021 the command of the law is to the effect that there must be material indicating the existence of an ‘asset’ that leads to the inference of escapement of income. The import of the phrase ‘books of income’ has been considered by a Division Bench of this Court in Commissioner of Income-tax vs Taj Borewells [2007 (4) TMI 203 - MADRAS HIGH COURT] that makes reference to an earlier decision in S.Rajagopala Vandayar vs. CIT [1990 (1) TMI 36 - MADRAS HIGH COURT] as held Profit and Loss Account and the Balance Sheet are not the books of account as contemplated under the provisions of the Act. The learned Standing Counsel for the Revenue has not placed any authority or any case law or any other material or evidence to show that the books of account includes Profit and Loss Account and Balance Sheet. Thus the impugned notices and proceedings for reassessment are quashed. Assessee appeal allowed. Issues Involved:1. Assumption of jurisdiction for re-assessment for AY 2014-15 and 2017-18.2. Whether the officer had 'information' in terms of Explanation 1 to section 149, to proceed with the impugned re-assessments.3. Whether the officer had in his possession books of accounts or other documents or evidence that are represented in the form of an asset to conclude that income had escaped assessment.Summary:Issue 1: Assumption of Jurisdiction for Re-assessment for AY 2014-15 and 2017-18The petitioner, a Bank and an assessee, challenged the re-assessment proceedings for AY 2014-15 and 2017-18. For AY 2014-15, the original return was filed on 29.11.2014, followed by a revised return on 31.03.2016. The assessment order was passed on 29.12.2017 and was pending appeal. A notice under Section 148 was issued on 07.04.2021. The petitioner argued that the procedure under Section 148A, effective from 01.04.2021, was not followed, making the notice invalid. For AY 2017-18, a similar sequence of events occurred, with the original and revised returns filed on 30.11.2017 and 29.03.2019, respectively, and the assessment order passed on 30.12.2019. The notice under old Section 148 was issued on 30.06.2021. The petitioner contended that the re-assessment was beyond the statutory time limit and that the issues sought to be re-assessed had already been scrutinized.Issue 2: Officer's 'Information' to Proceed with Re-assessmentsThe petitioner argued that the officer did not have 'information' as per Explanation 1 to Section 149 to justify the re-assessments. The officer's reasons for re-assessment were based on financial records and materials already available during the original scrutiny. The court noted that the new scheme of re-assessment requires the officer to possess 'information' suggesting that income chargeable to tax had escaped assessment. The court found that the officer's reasons did not qualify as 'information' under the new provisions, as they were based on existing records and did not reveal any new material.Issue 3: Possession of Books of Accounts or Evidence Represented in the Form of an AssetThe petitioner argued that there was no asset representing the income that allegedly escaped assessment. The revenue contended that suppressed income or wrong claims of disallowances constituted an asset. The court held that the officer did not have any new material or evidence indicating an asset that led to the inference of escapement of income. The court also noted that the amendment to Section 149 by Finance Act 2022, effective from 01.04.2022, includes situations such as the present, but it cannot be applied retrospectively.ConclusionThe court quashed the impugned notices and proceedings for re-assessment for both AY 2014-15 and 2017-18, finding that the assumption of jurisdiction was not justified. The court emphasized that re-assessment must be based on new and tangible information, which was not present in this case. The writ petitions were allowed, and the miscellaneous petitions were closed. No costs were awarded.